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Distributive Bargaining

Updated on April 12, 2024
Article byAnkush Jain
Edited byAnkush Jain
Reviewed byDheeraj Vaidya, CFA, FRM

What Is Distributive Bargaining?

Distributive bargaining is an adversely competitive negotiation where two parties strive to divide a fixed and limited resource in their favor. Distributive bargaining tactics are essential, especially in situations where no alternatives seem to satisfy the situation’s demand.

Distributive Bargaining

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The key to securing a deal through this strategy is to hold information secretively and gain knowledge that the negotiator can use against the counterpart. Negotiators use unethical tactics and may become manipulative and deceptive to secure the deal in their favor.

Key Takeaways

  • Distributive bargaining is a competitive strategy through which all parties attempt to draw maximum benefit at the cost of their counterpart’s share of gains.
  • It is most appropriate when resources are limited and a decision has to be made, like labor union negotiation or salary negotiation.
  • Negotiators usually go all out in distributive bargaining, hindering future relationships or business with their counterparts.
  • A negotiator attains the upper hand in the bargain by withholding information or using information against their counterparts.

Distributive Bargaining Strategy Explained

Distributive bargaining or zero-sum bargaining is a strategy used to divide a limited or fixed resource in a high and almost unhealthy manner that puts them at risk of securing no further business in the future with the other party.

“Sharing the pie” is a common metaphor used to describe the distributive bargaining process as a pie is a limited source of gain, and if one party gets more, naturally, the other one has a lesser share left.

A Distributive bargaining situation can arise in various cases ranging from settling insurance claims to negotiating employee vacation schedules. Although the negotiation process is a strategy game and a gamble, it requires a certain degree of expertise and flair to pull off. In addition, the nature of business, the strength of the negotiator’s position, personality, and cultural projection play a vital role in negotiating this nature.

The very nature of distributive bargaining is that the parties involved have mutually exclusive goals and conceal as much information possible about them while making constant efforts to secure more information from the other party. Subsequently, by negotiation and compromise, they arrive at a place where both parties are satisfied with the deal.

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Characteristics

A Distributive bargaining situation can be either a hard or a soft negotiation. A hard negotiation is when both parties hold their ends and do not want to compromise their positions. The non-budging attitude generally leads to a situation where the parties involved can make no further progress. It is often referred to as an impasse. In a distributive bargaining situation, the environment is hostile and controlled and is an apt type of negotiation when the available resources are limited.

On the flip side, in a soft negotiation or bargain, both negotiators follow a give-and-take policy where compromises and concessions are considered before a deal that satisfies both parties are drawn out. The environment in such bargains is open and constructive and is the best fit when abundant resources are available.

With the basic outline of distributive bargaining strategy outlined, let us understand its characteristics through the points below:

  1. Leverage: It refers to the tools of bargaining where a party convinces their counterparts to compromise potential benefits through the information that is withheld or acquired to use against them.
  2. Win-Lose: The negotiators heavily rely on the mindset that if one party wins, the other loses. However, the conventional win-win attitude does not apply to this nature of bargaining.
  3. Conflicting Goals: The parties involved have mutually exclusive goals and want to maintain their position to ensure they derive maximum benefits.
  4. No Future Considerations: Negotiators apply their expertise to the current bargain without considering future business or relationships with their counterparts.

Examples

Let us understand the concept better with the help of the examples below:

Example #1

Trevor had just landed his first job and wanted to buy a used car to commute to work. He set his budget at $3,000 for the same. Since he was on a tight budget, he wanted to ensure he gained sufficient information about the cars on sale in his area and more details about them.

He found that Noah, a car dealer, had been trying to sell a car for the last 45 days but had been unable to do so. Upon reaching Noah’s garage, Trevor found the price of the car to be $3,100.

Trevor used his information and convinced the seller that he would not find a better deal than $2,800 and the car might incur more maintenance costs if he held it any further. Finally, after a round of back and forth, they settled on $2,850.

Trevor not only purchased the car for $150 lesser than his budget but also used the information to his advantage and gained more than Noah through this deal.

Example #2

In December 2022, the nursing and paramedical staff in the UK demanded a 19% salary hike. However, the government, still recovering from Brexit, the Pandemic, and a transition in leadership remained firm that they would not budge since such a hike cannot be affordable, especially when the country cannot risk prolonging the inflation rate.

The newly elected Prime Minister Rishi Sunak said he would be ready to hold out for months, if necessary, as the government had already given the medical and ambulance staff a 4% hike taking their average salary to 47,000 pounds. Any further hikes would mean lesser funds for frontline services. Hence, unreasonable pay hikes cannot be catered to currently.

As a result, the paramedical and nursing staff declared a strike during the holiday season when people generally travel for the holiday season to cause more disruption.

Advantages And Disadvantages

In the business world, where resources are generally scarce, organizations must ensure that they get a significant chunk of the available resources to thrive. Although distributive negotiation holds great importance in business, it is not independent of disadvantages.

Let us briefly discuss its advantages and disadvantages through the points below:

Advantages

  • Maximum Benefit: In a scenario where the resources available are limited or everyone involved cannot enjoy the benefits, this nature of bargaining ensures the best possible deal.
  • Solves Issues: Distributive bargaining tactics occur only in situations where there is no progress or the other party is unwilling to compromise so that everyone involved can benefit in an integrated manner.
  • Freedom: Since the two parties will likely not be doing business together in the future, they can go all out and ensure maximum benefit is derived from the present deal.

Disadvantages

  • Non-Cooperation: It contradicts business ethics, cooperation, and understanding of the parties involved. Instead, the focus is too much on the differences between the parties involved and their goals. The aggressive negotiation often leads to no further business or relationship between them.
  • Win-Lose Mindset: The core principle that if one party wins, the others involved have to lose is impractical as the pie can be extended for everyone by equal distribution through an integrative bargaining strategy where the parties can continue to work or collaborate in the future.
  • Not Future Oriented: This intense form of bargaining might lead parties to make decisions that might tamper with their relationship. Since the focus is on their differences and not how the parties involved can mutually settle the deal or judgment, future transactions or communication will cease between them.

Distributive Bargaining vs Integrative Bargaining  

Let us understand the difference between distributive and integrative bargaining strategies through the table below:

BasisDistributive BargainingIntegrative Bargaining
InformationInformation is concealed or used strategically or selectively.A free and open flow of information and negotiation is carried out.
Common GroundsThe emphasis is on differences in objectives, interests, and goals.A clear emphasis is on shared interests, objectives, and goals.
Scope for UnderstandingMinimal efforts are made to understand the perspective of the other party. Instead, the information is used to gain an advantage over its counterpart.Even though it is still a negotiation, an attempt to understand the other person’s needs and wants is made.
SolutionsThe negotiators in a distributive bargain search for solutions beneficial to their needs. They might try to block their counterpart from getting their needs fulfilled.Negotiators meet mid-way where their needs can be catered to and reach a win-win situation.
Strategy TypeCompetitive strategy.Collaborative Strategy.
RelevanceIt is relevant when the resources available are limited.It is best used when the resources are available in abundance.
EnvironmentA hostile and controlled environment is evident in a distributive negotiation.The environment is constructive and open in an integrative bargain.

Frequently Asked Questions (FAQs)

1. When is distributive bargaining appropriate to use?

The distributive bargaining process is most appropriate when the available resources are limited, and all parties involved want to ensure maximum benefits in their favor. For example, it is common in labor union negotiations, salary negotiations, and products without a fixed price, such as used cars.

2. Why is integrative bargaining preferable to distributive bargaining?

Integrative bargaining is generally one of the most preferred forms of negotiation as it constructs a long-term relationship between parties and aids future business as every party involved in the deal leaves the table feeling like they have been victorious.

3. What are the four strategies in distributive bargaining?

Strategies generally differ based on the negotiator’s position, the situation of the bargain, cultural projection, and the nature of the business. Nevertheless, intimidation, claiming less or no authority, bluffing, and reluctance is often used to ace a distributive negotiation.

This has been a guide to what is Distributive Bargaining. We explain its characteristics, examples, advantages, and comparison with integrative bargaining. You can learn more about finance from the following articles –

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